Bob
Bob Schultek
Author of
The Gauntlet

The fundamental premise for business acquisitions is that the merged organizations will be more valuable together than they would be if they continued as separate entities; an acquisition is expected to create value.

Yet, a multitude of research studies cite a high failure rate for mergers. One KPMG study indicates that 83% of acquisitions fail to boost value, and another by A.T. Kearney concludes that total return on many M&A deals is often negative.

These studies consistently point to poor cultural compatibility as the root cause for this high rate of acquisition failure?

The KPMG study and others agree that value creation is more dependent on successful culture integration than on any other factor. Without a timely and extensive integration of cultures, the sustainability of the acquired business is compromised, as is the opportunity for the deal to create value.

Start the integration process right by thoroughly evaluating cultural compatibility during due diligence; and prior to assessing the target organization’s culture, ensure that you understand your own. This will enable you to make clear choices about expected behaviors and other attributes for the merged entity.

Unfortunately, of the five key due diligence parameters for acquisitions – risk, price, strategy, management capacity and culture – the least attention is typically paid to culture integration. This is no surprise, since assessing the ingredients of a company’s culture – values, behaviors, relationships, attitudes, and commitment to customers – is not readily quantifiable.

Since cultural compatibility drives the post-acquisition sustainability of the business, consider the following as part of your culture due diligence:

  1. Be sure that the target organization understands how it makes a difference. What does it own in its market and how does this accelerate its customers’ progress? Why do its people choose to invest their talents and energy in the business? How has it motivated those people to invest discretionary effort to drive change and achieve goals?
  2. Be certain about how the business contributes to its customers’ progress and growth. Why do their core customers entrust their business to this organization? Is the organization more outwardly or internally focused? Would you recommend this company to a friend?
  3. Be specific about which aspects of the company’s culture contribute most to its success and sustainability. Why is this so? Will the acquiring organization be able to retain the productive aspects of this culture as a driver of its business sustainability? Would you like to work for this company?

If your responses increase uncertainty about a successful integration of cultures, then hit the pause button on the acquisition. If the probability of cultural compatibility is strong, then build an integration plan that will create and sustain value.

How has your culture contributed to your
company’s success and sustainability?
 
How has it motivated your people to invest
discretionary effort that drives change and achieves goals?